Scan, Organize... and Now Populate: The Workflow Revolution Continues

by Isaac M. O'Bannon On Sep 1, 2008

From the Sept. 2008 Issue

Just a few short years ago, the paperless office movement started a new class
of programs designed toward creating a digital professional environment. While
there may be some environmental advantages to the paperless office paradigm,
the major proponents of the effort were far from tree huggers. Instead, they
were savvy professionals who understood the technological landscape and saw
the many opportunities that such a digital revolution could provide.

These benefits included practical issues such as limiting the need for storage
space, but they also allowed for more reliable document retention, instant access
to client records and the ability to keep all client-related documents together
by creating digital folders. As the technologies evolved, additional features
became available, enabling professionals to create fully electronic digital
workpapers that enhance collaboration between professionals or between the client
and the firm, as well as offering dynamic links (drill-down functionality) from
returns, financials and other work product to the supporting documents, spreadsheets,
programs and other related materials.

Revolutions are not pain-free, of course. This substantial change caught many
firms off-guard as they implemented solutions that required them to redesign
their internal workflows. And when looking at the greater picture, the paperless
movement was only a part of the larger issue of revamping firm processes to
take full advantage of the productivity and efficiency-boosting capabilities
of these new programs.

The most recent innovation in the workflow revolution is automated population
of 1040 tax returns with data from source documents. Ever since the concept
was first touted a few years ago, it has been generally embraced as a way to
quickly eliminate much of the labor involved in data entry. But with optical
character recognition (OCR) not quite reliable enough for truly hands-off automatic
transfer of data into forms, technology vendors in the tax and document management
spaces had to develop workflow methods that would optimize the automation aspects
of the concept, while instituting efficient review processes.

Through several years of development, several products are now coming to the
market. Much more than just add-ons to a tax system, these automated population
utilities bridge between a document management application and a professional’s
tax program. In most cases, the systems are offered as a part of a vendor’s
document management suite, essentially making these systems into a new breed
of programs that “scan, organize and populate.”

How the Process Works Each of the scan, organize and populate systems on the
market works in different ways and has varying workflow processes, but at their
base, they are designed for a firm that has a front-end scanning process in
place.

In other words, the first thing to do when a client delivers a stack of documents
is to put them in a scanner. Since the quality of the scanned document is greatly
affected by the quality of the original, it’s best to scan the originals,
not photo copies. After this, the systems manage the scanned documents in different
ways, generally providing an electronic work folder or other filing system.

The systems then look at each form to determine what they are (W-2, 1099, K-1,
brokerage statement, etc.). This is the hard part, and it’s the area in
which most of the vendors concentrated since there are literally thousands of
slight variations to even the most common forms — think about all of the
different bank-produced 1099-INTs out there. The better a system is at recognizing
these forms, the better job it does in the next step, which is pulling data
from each of the fields and classifying it appropriately (as income, interest
or other categories).

The programs currently on the market generally approach this form recognition
function in one of two ways — either by having a built-in library of form
types that the system uses to identify scanned forms, or by securely transmitting
the scanned image format (not the data) to the vendor’s large array of
servers, which learn from the experiences of all users of the system. This latter
method is much more robust, providing the most comprehensive recognition capabilities.

Once the form has been recognized and the data extracted, the next step is
critical: verification of the data that has been scanned, after which can be
transferred into a client return. This front-end check of the data is necessary
to ensure accuracy. Once the data has been input into the return, it is editable
just as any other entry and, depending upon the tax and auto-populate program,
often offers drilldown access to the scanned document.

Of the half dozen systems on the market, most are currently being offered by
developers of tax software, with the populate features only available for users
of their professional tax preparation systems. However, two workflow automation
vendors, SurePrep and Copanion, offer independent systems that integrate with
several tax packages.

The ProSystem fx Scan system, which was originally called BOCDIP
and which was a recipient of a 2006 Tax & Accounting Technology
Innovation Award (www.CPATechAdvisor.com/go/1196),
was one of the first breed of document recognition scanning systems. The program
essentially works by allowing users to scan in all of a 1040 client’s
tax-related forms, statements and other documents, with the system using optical
character recognition technology (OCR) to identify what the individual documents
are and then produce a fully bookmarked and logically organized PDF file that
includes all of the documents.

This results in a fully digitized set of workpapers that can be used in a dual-screen
setup to review a client return. Bookmarks can be sorted to meet firm workflow
needs, and the program includes strong search functionality for retrieving specific
forms within client records. Since the program is part of the ProSystem fx
Suite, it also offers integration with CCH’s tax, write-up and document
management systems, as well as with the vendor’s client collaboration
portals. Through the optional PDFlyer module, users are also given enhanced
PDF review capabilities, such as the ability to move pages and bookmarks within
the document, utilize tickmarks and connectors, or resize and rotate document
views.

For the 2008 tax year, CCH has added the optional AutoFlow Technology system
for ProSystem fx Scan. This new feature provides automatic population
of client data into 1040 returns prepared using ProSystem fx Tax. The
process is straightforward, with the program extracting data from previously
scanned client documents, and then providing two validation features to ensure
data accuracy. Users, generally administrative staff or junior professionals
charged with scanning and inputting initial data, can look over OCR results
and also ensure that items are classified properly. When the tax system is opened,
the user is alerted that information is available for that client, and the user
can then import it directly into the client return much like organizer data.

Both Scan and its AutoFlow system are locally installed on the firm’s
computers, which keeps all data in-house and generally provides for more intuitive
ease-of-use, but can result in slower processing times when compared to systems
that securely route form data to large processing centers with larger server
arrays performing the work. CCH does offer some of the benefits of the server-side
technology, however.

“During tax season, when time is at a premium, AutoFlow Technology will
shift 1040 data entry functions away from a firm’s professional staff,”
said Bob Dias, CCH Vice President of Product and Segment Management. “Any
solution that saves significant professional time is obviously of huge benefit.”

AutoFlow Technology is imbedded in Scan v4.0 and available to all ProSystem
fx Scan users without an additional license fee. A per-return transaction
fee is applicable for importing the extracted information into ProSystem fx
Tax. The list price per return is $15, irrespective of the number of imports
or the number of forms imported. The $15 authorization list price has been reduced
to $10 for an initial promotional period.

Since the acquisition of ATX and TaxWise by CCH a couple of years ago, the
two tax preparation systems, both geared toward small and mid-sized firms, have
seen increased development, thanks to the considerable resources that CCH has
to offer. One of the more notable developments over this time is the Scan&Fill
module, offered under each of the tax systems’ names. The module, which
includes a basic Document Manager system, provides direct scanning using most
scanners (sheet-fed is preferable), with optical character recognition (OCR)
extracting client data from W-2s and most versions of 1099.

Operating separately from the tax system (either ATX or TaxWise), Scan&Fill
automatically creates a temporary client folder that stores documents that have
been scanned, with items sorted by document type. Each of these documents is
saved as an individual image file (*.jpeg), while the system’s Review
function provides a panel that displays the data that has been extracted from
an individual form and allows editing as necessary.

Scan&Fill’s AutoFile feature automatically files recognized documents
in the client’s folder or the program will automatically create a new
client folder and file the document if the client is not yet in the system.
After the user has verified the accuracy of the data in the scanned form, the
next step is to move the temporary folder into the Active Client Directory,
which is part of the document management features of the program and provides
separate folders for source documents and the client tax return. Individual
folders for spouses filing jointly can be linked so that when the user chooses
to populate the return, data from both are included. After these review and
folder management tasks, the process of transferring client data is performed
by exporting the data into a file that is then imported by the ATX or TaxWise
preparation system.

While preparing a tax return, users can access scanned source documents and,
when the return is completed it can be stored as a PDF with the client’s
documents in the document management module. The Document Manager also enables
storing of other digital files and documents related to a client engagement,
such as signature pages, receipts and notes. It also provides basic search functionality.

Although its form recognition and workpaper management capabilities are less
comprehensive than many of the other auto-population systems designed for larger
practices, Scan&Fill’s feature set is well suited to smaller and mid-sized
practices using TaxWise and ATX and who are looking for a paperless solution
that also provides time savings by automating much of the data entry associated
with 1040 tax preparation services. The system costs $715 for a single-user
license, $1,035 for up to five users.

Forms Supported for Automatic Population of a Tax Return and AutoFile
to the Client Folder: W-2, 1099 (most versions) Additional Forms Recognized for AutoFile to the Client Folder:
K-1, 8879

Copanion is a new entry into the space, having debuted GruntWorx last fall.
The fully web-based workflow management system provides scanning, identification
and bookmarking of all client documents into a set of digital workpapers that
enables users to quickly jump to any document when reviewing a return or performing
other tasks. The system also allows the addition of tickmarks and notes from
multiple users, allowing firms to keep much of their traditional processes intact.
In its first year (TY2007), professional users at firms ranging from the Big
4 to small practices processed more than 350,000 client documents using the
system.

In time for next tax season, Copanion is adding automatic tax return population
features to the Pro version of GruntWorx, making it one of the few products
on the market that is not from a tax software vendor and that integrates with
multiple systems. For the 2008 tax season, GruntWorx Pro will automatically
export data from scanned tax documents into GoSystem Tax RS. Support for additional
tax preparation software packages will be determined and announced later in
the 2008 tax year.

Among the more notable features of GruntWorx are several patent-pending technological
aspects, including biometric recognition of forms. This feature in particular,
which is similar to the technique used by law enforcement for analyzing fingerprints,
gives the system the ability to recognize the most minute differences between
various forms. Couple this with the intelligence of the program, which can actually
learn as it goes and share this experience across all users, and the result
is that GruntWorx has the ability to recognize virtually any type of form or
consolidated statements, regardless of the issuer. The system also has the ability
to identify tax organizers and handwritten notes.

The resulting product is an organized, bookmarked PDF file and coversheet,
with a summary of client data that can then be uploaded into one of the supported
tax preparation systems. GruntWorx also has an Image Enhancement feature, which
improves the quality of scanned input. All of this processing power gives the
system extraordinary accuracy, but requires significant infrastructure, which
Copanion maintains at its secure facilities.

The actual user process is very simple, and the initial functions take only
three steps:

GruntWorx then processes the files and identifies, classifies, sorts and compiles
the bookmarked PDF workpapers. When processing is complete (usually in one or
two hours), the program notifies the user, who then securely downloads the PDF.
Tax professionals can use the bookmarked PDF to quickly find and enter tax data
in any tax software. GruntWorx Pro provides the additional capability to extract
data from the scanned tax documents and automatically populate the data in tax
preparation software. The extracted data can be verified for accuracy against
the scanned source documents in the bookmarked PDF.

All data is secure, remains in the United States and is never accessible to
outside eyes, making the system fully compliant with IRC 7216. Pricing for the
scan & organize function is very affordable at $1 to $2 per client based
on volume, regardless of the actual number of documents and pages scanned. Pricing
for GruntWorx Pro for GoSystem Tax RS will have a list price of $50 per return.
“Automatic population of client data can save significant administrative
time, but there are many challenges that must be overcome to develop a reliable
system,” said Ed Jennings, Copanion’s vice president of sales and
marketing.

“There can be thousands of variations of even the most basic forms, depending
on the issuer, so we focused on ensuring the accuracy of classification across
a broad range of forms. We also wanted to make sure the system was intuitive
and easy for users to understand.”

1040SCAN is the most mature digital document organization and auto population
system on the market, having been used the past three tax seasons by thousands
of professionals. For TY2007, the secure, web-based system and its population
features were used to process more than 125,000 returns, and the company expects
that number to double next tax season. SurePrep also offers a Lite version of
1040SCAN that offers only scan and organize (no population) features, which
is best-suited to users of non-supported tax programs. The vendor also offers
domestic outsourced tax preparation services.

The key benefits to 1040SCAN are its population capabilities, which integrate
with GoSystem Tax RS, ProSystem fx Tax, and Lacerte to automatically extract
data from scanned documents for preparing client 1040 returns. As a part of
this process, the system automatically identifies all of the scanned documents
and organizes them, then provides the user with a bookmarked PDF file that includes
all of the items in an order that follows the flow of the return. This set of
electronic workpapers can greatly streamline the review process, with documents
easy to find and quickly retrievable. 1040SCAN can identify and extract data
from thousands of variations of all 1040-related forms and consolidated statements
from more than 70 brokerage entities.

In great part due to its maturity on the market and the fact that the company
has more than 200 professional U.S. tax preparers on its staff who help in program
development, 1040SCAN provides the most advanced data verification and analysis
tools. In fact, SurePrep built a separate diagnostics program focused specifically
on classifying documents and identifying potential duplicates or errors. The
result is much greater accuracy than simply relying on OCR and can alert users
to issues such as data previously entered on an organizer that has also been
scanned into the system. The program also offers a series of diagnostic reports.

Operation of 1040SCAN is simple and geared toward non-professional administrative
staff who first scan the client documents and upload them to SurePrep’s
secure servers, where they are identified, organized and data is extracted for
use by the population feature. The next step is completion of the 1040SCAN Review
Wizard, a verification process that guides the user (ideally still an admin
or intern) through a checklist of potential errors or duplications. The bookmarked
PDF is available after this process, and client data can be exported into one
of the supported tax systems with just a few mouse clicks. The professional
assigned as the preparer is then notified that this client return is in progress
and awaiting action.

According to Bret Wier, SurePrep’s VP of Sales and Marketing, optimizing
a firm’s workflow is one of the biggest factors in achieving the greatest
results from such a system. Additionally, the practice should utilize up-front
scanning and data verification and use a high-quality scanner.

“The quality of the scanned images is critical because it affects the
ability of the OCR to recognize forms and data contained on them,” he
said. “Each year, we stress to our users that having a good scanner is
essential, and we often recommend the Fujitsu 6130 with VRS from Kofax. That
scanner model costs about $1,100 (from Dell.com), and Wier notes that it is
a good fit for firms preparing up to 2,000 client 1040 returns.

1040SCAN also includes numerous workflow management tools, enabling preparers
and managers to quickly see the progress of returns assigned to them, and alerting
them to when action is required on their part. These tools are especially valuable
since they help firms implement more efficient workflow processes that can help
save as much as 25 percent of senior reviewer time. 1040SCAN’s list price
is $30 per return with a 20 percent early season discount if purchased prior
to the end of September 2008.

GoFileRoom ES is a secure, web-based document management system offered as
part of the Thomson Reuters Enterprise Suite family of high-end, professional
accounting and tax compliance programs or as part of the CS Professional Suite,
which is geared toward smaller and mid-sized practices. Both suites offer a
variety of applications for professional accounting firms, ranging from tax
and write-up to practice management and planning. While the features and capabilities
of the ES and CS flavors are exactly the same, the two offerings differ in integration
and pricing.

GoFileRoom ES offers extensive document management and workflow features, organizing
documents in an index-based structure that enables thorough search and query
functions, as well as offering full linking of source documents to and from
client returns. Through the program’s FirmFlow module, users can manage
all aspects of client engagements, with management of all scanned documents,
files, notes, checklists and firm-specific routing slips or other items. With
the addition of the TaxSort module about two years ago, GoFileRoom ES also offers
advanced organization functions, with the web-based system processing scanned
1040 source documents, identifying what each document is, and producing a bookmarked
PDF file that organizes the documents into the correct tax preparation order,
along with a summary cover sheet of extracted client data.

Since the core features of this module rely upon recognition of forms for which
there can be numerous variations, the program is specifically designed to learn
from previous use. That is, the first time a user at a firm scans in a particular
form that has never been identified by the program, which is housed on Thomson
Reuters secure servers, it might take a little longer to process. But the next
time someone at that firm or any other firm using GoFileRoom ES submits that
particular form, the recognition process is almost instant. No client data is
retained in Thomson Reuters servers, only basic information about the formatting
of documents, which helps it build its knowledgebase.

GoFileRoom ES can recognize virtually all common forms and even infrequently
used ones, as well as combined brokerage statements of any length from almost
all sources. The system integrates directly with the GoSystem Tax ES compliance
package, but it does not currently offer an automatic client return population
feature. Frank Swierz, a Senior Director of Software Development for Thomson
Reuters, noted that they are exploring development of such a system, as well
as considering partnering with third-party developers for integration with their
auto populate capabilities.

There is no separate module fee; per-return pricing for TaxSort starts at $1
per tax return, and the per-return price decreases as volume increases.

Forms Supported for Automatic Population: None at this time,
although Thomson Reuters is considering development of an automatic population
feature in the future (see above). On the CS side, the FileCabinet CS solution
does offer a population module with integration into UltraTax CS.

FileCabinet CS is part of the Thomson Reuters CS Professional Suite. Initially
designed as a paperless document storage system that houses scanned client documents
as images along with digital document files in a basic folder-based format,
FileCabinet CS has evolved over the past few years to include various organization
and management tools, including the ability to add annotations to documents,
track histories, integration of e-mail and fax functions, as well as reporting
and analysis features. Thomson Reuters also offers GoFileRoom ES, a more robust
document management system that provides digital workpaper output.

The most recent additions to FileCabinet CS have focused on workpaper organization
and the addition of optical character recognition (OCR) capabilities that enable
automated population of client 1040 returns processed using the UltraTax CS
professional preparation system. This year, Thomson Reuters debuted the optional
Source Document module, which offers form recognition, extraction of form data
and the ability to integrate with the tax package. This new module is specifically
geared toward use of the automatic population feature, since it does not result
in compiled, organized and bookmarked PDF or other advanced digital workpaper
output, but instead stores the data in a client folder as individual items.

While FileCabinet CS is generally locally installed (although it can be remotely
hosted), the Source Document module is a web-based feature through which users
scan documents and securely transmit them to the Thomson Reuters Data Center
for OCR processing, data extraction and page naming. When returned to the user,
the extracted tax data can be reviewed (best done with a dual monitor), edited
using the UltraTax CS Source Data Entry utility if necessary, and then imported
into the tax system.

For users familiar with any of the programs in the CS Professional Suite, navigation
will be familiar, and the entire process should be fairly intuitive, with only
a few steps to follow. First, documents are scanned and grouped, then placed
into a folder; they are then sent to Thomson Reuters for processing. When processing
is complete, the user receives individually named PDFs for each document and
is notified via the Message Center in UltraTax CS that client data is available
for entry into the system. After verifying the data, the user can select the
populate function, which routes data to appropriate entry fields.

Since the program is web-based instead of locally hosted, it offers the advantage
of being able to learn form formats and other information (not client data),
which enables it to operate increasingly more efficiently and quickly as tax
season progresses. Additionally, as a system designed for firms using an up-front
scanning process, it frees professional staff from the administrative tasks
associated with document scanning and management.

There is no separate fee for the Source Document Module; however, it will have
a per-return pricing fee, which was yet to be determined at the time this article
was written. FileCabinet CS starts at $1,500.

It is important to remember that automated population of client data is only
one step in the new workflow processes evolving to make professional practices
more efficient and productive. Just as technology has affected almost every
aspect of the profession, it also requires that firms be flexible and open to
new workflow methods.

New technologies such as scan, organize and populate systems may have the potential
to greatly optimize productivity, but adaptation of work processes is necessary
to get the most out of them. It’s also wise to have the right hardware:
Dual-screen monitors are pretty much essential, and firms should invest in a
high-volume scanner or a workgroup model (see www.cpatechadvisor.com/go/2116
for more information about scanners).